A Big Merger Shakes Up Power Services

Wind turbines near Jacobsdorf, Germany. A merger of two of the biggest backstage companies has sparked some concern in the wind power industry that the consolidation could give one company too much market share.Credit
Patrick Pleul/European Pressphoto Agency

SAN FRANCISCO — When people think about the wind power industry, they usually envision turbine makers and wind farm developers.

But behind the scenes, a shakeup is afoot. Two of the biggest backstage companies merged last month in a transaction that has sparked some concern in the industry that the consolidation of two large competitors could give one company too much market share.

Regulators around the world have approved the deal, which will combine the Norwegian firm DNV (Det Norske Veritas) with GL Group, which is German. The two private companies, now merged, provide certification and other services to the energy industry.

“It is nearly impossible to find a wind project that isn’t touched by one of these companies in some capacity,” said Patrick Woodson, chief executive of the North American onshore wind group of E.ON Climate & Renewables, in an e-mail. “These are the two behemoths in the business.”

“If you’re not certified, you won’t get insurance. If you can’t get insurance, you won’t get funding,” said Dan Radomski, vice-president of NextEnergy, a Michigan nonprofit that facilitates clean energy investments.

The newly combined DNV GL Group will be headquartered near Oslo. Because the combined company also specializes in marine engineering, it could help reinvent the way offshore wind turbines, their foundations and even the vessels that service them are designed, according to Eduard Sala de Vedruna, the Paris-based head of the global wind power service at IHS, a research firm.

Henrik Madsen, chief executive of the combined company, said that over 1,000 DNV GL employees worked on renewables, with offshore wind a key focus.

“So many new things are happening. Turbines are getting bigger,” Mr. Madsen said, adding that the offshore wind cost curve still needs to come down by 40 percent.

The merger is coming at a time when the global wind industry is growing, albeit fitfully. In the United States, developers are racing to start building wind farms by the end of the year to take advantage of a federal tax credit that expires in December. The Global Wind Energy Council expects growing interest from developing countries and “strong markets” in China, India and Brazil.

It projects uneven development in Europe, where concerns about renewable-energy subsidies have grown.

Because of the two companies’ reach, the merger has raised concerns among some in the industry, even though it was recently approved by competition authorities in the United States, the European Union, China and South Korea.

“The only reason people would be concerned about it is because of the market-share aspect,” said Andy Bowman, founder and president of Pioneer Green Energy, a renewable energy developer based in Austin, Texas. His company has its own meteorology consultant but still turns to DNV GL for wind-power forecasts when it wants to get financing.

“The reason why we have to use DNV GL is that our meteorologist isn’t ‘bankable,’ i.e., the banks won’t accept his report,” he said in an e-mail. “In fact, DNV GL is one of the only sources for bankable wind forecast reports.”

Challenging the analysis in the forecasting reports, or reports on engineering or transmission, is harder now that “they are more or less the only game in town,” Mr. Bowman said.

Mr. Radomski also said he could see why the industry would have “concerns,” and Mr. Woodson of E.ON said that the merger “will certainly limit the number of established and independent experts in the market.”

Mr. Madsen acknowledged that DNV and GL had been the “two main competitors” in onshore wind. However, he noted that competition authorities had approved the merger, so market share was clearly low enough that “it was not a problem anywhere.”

Competitors include the American Bureau of Shipping, SGS in Switzerland and Lloyd’s Register in Britain, the company said. DNV and GL had a 42 percent combined market share for wind turbine certification in Europe last year, according to Per Wiggo Richardsen, a company spokesman.

Commenting on the merger, Steve Sawyer, secretary-general of the Global Wind Energy Council, said in an e-mail that he was “surprised when it passed through the competition authorities in the U.S. and Europe without much fuss.” However, he added, “the main criteria was the fact that there was no barrier to entry for other players who want to compete in the market; and there are still many other players in the U.S., U.K., France, Germany, China, etc.” DNV and GL were members of the council, as is now the merged company.

Consolidation is not a new development. Garrad Hassan, a British wind forecaster, bought several engineering and forecasting companies before merging with GL in 2009. DNV, meanwhile, was also buying companies, including the Dutch energy consulting firm Kema in 2011.

“I think in a lot of ways it tracks consolidation in the wind industry,“ Mr. Bowman said, noting that many wind developers are now affiliated with major American or European utilities.

The merger will have ramifications for the energy industry beyond wind. Both companies are maritime and oil and gas experts. They establish rules for building offshore rigs safely, for example. DNV even verifies projects for the Clean Development Mechanism, the United Nations’ carbon emissions reduction project, though it was briefly suspended from this activity five years ago after a U.N. audit found problems with its internal documentation.

The new company, moreover, will have an increased global reach. Both GL and DNV have recently been active in Asia, according to Justin Wu, an analyst in Hong Kong who heads the wind research practice for Bloomberg New Energy Finance.

“There are a lot of companies in Asia developing new technology, entering renewable energy,” Mr. Wu said. GL and DNV were helping to bring those companies up to international standards and providing them with advice on technical matters, he said, though one challenge is that companies in Asia are designing very different types of turbines to accommodate different conditions, such as wind speeds.

Mr. Madsen said the combined company would have a strong presence in Europe and America and a strengthening presence in South America and Asia. “It’s such a growing industry, we need to be present all over the world,” he said.

Representatives of Vestas, the Danish turbine maker, NextEra Energy Resources, a major U.S. wind developer, and Pöyry, an international engineering and consulting firm based in Finland, declined to comment for this article.

Mr. Bowman of Pioneer Green Energy said the combined company’s role in the wind industry would continue to be huge.

“What’s fascinating is — to finance these wind projects, it’s hundreds of millions of dollars,” Mr. Bowman said, “and what is backstopping that entire investment is somebody saying, this wind project is going to produce this amount of energy each year for the next 20 years.

“For somebody to be able to do this — and have the credibility to make bankers comfortable — is really remarkable. These guys have served that role.”